Magazine

Gemplus: No Picnic in Provence

August 05, 2001

For Antonio M. Perez, it was an invitation too good to refuse. Last summer, the 25-year Hewlett-Packard Co. (HWP) veteran was offered the top job at Gemplus International (GEMP), a high-tech company perched on a sun-baked Proven?al hillside near Marseille. In just over a decade, Gemplus had become the world's No. 1 producer of smart cards, the microchip-embedded cards used for everything from phone calls to credit-card transactions. The company was looking for a seasoned CEO to take over from its founder in advance of a planned listing on the Nasdaq. As an added lure, Gemplus offered the Spanish-born Perez stock and options worth some $97 million at the time he joined up in September.

But Perez' year in Provence has been anything but lyrical. Slowing mobile-phone sales have sharply reduced demand for the fingernail-size Gemplus chips that are placed inside GSM-model cell phones. Gemplus posted a $9 million operating loss during the first quarter and has warned that second-quarter losses may reach $14 million.

DIFFERENT STYLES. To add to his woes, Perez quarreled with founder and Chairman Marc Lassus over Perez' plan to slash the 7,800-person workforce. Employee unions are calling for the ouster of the new CEO and several former Hewlett-Packard colleagues he recruited for senior posts. Meanwhile, Gemplus' shares have plunged a sickening 75% since its December initial public offering. "I hope never to go through anything like this again," Perez, 55, says.

Perez' rocky start underscores how difficult it can be to marry New and Old World corporate cultures. During the tech boom, European companies were eager to snap up U.S. talent. "There are not enough managers in Europe who can manage growth companies," says James Hand, manager of the Global Technology Fund at Investec Asset Management in London. But now the tough times are bringing differences in styles to the fore. While Americans are trained to respond quickly to a sales slump--by cutting staff and jettisoning troubled product lines--Europeans prefer to move more deliberately.

Gemplus definitely needs to shape up. A recent spate of acquisitions had left the company with excess manufacturing capacity and a hodgepodge of product lines--everything from "smart" inventory-control labels fitted with radio transmitters, to ski passes that automatically deduct charges for lifts and other expenses.

Now, Perez is out to remake Gemplus. He wants to reduce the company's dependence on smart cards--essentially a low-margin commodity--and move into higher-value services. For example, Gemplus is marketing a system to mobile operators that automatically sends a message of apology and offers free calling time to cell-phone customers when their calls are accidentally cut off by the network.

But Perez wasn't prepared for the reaction when he announced in May that Gemplus would be laying off 450 workers, mainly in Germany and the U.S. To soften the blow, Perez himself took a 20% pay cut. But leaders of France's militant leftist unions have not been appeased, and are calling for Perez' removal.

Chairman Lassus also got into the act, holding a tense private meeting with Perez at which he argued against the planned layoffs. "Marc was getting e-mails and calls from employees who knew him for years," a company insider says. "Emotionally, it was very tough for him."

Lassus, who was not available for comment, eventually rallied behind his embattled CEO. Perez also has the backing of Texas Pacific Group, a U.S.-based private-equity fund that owns 25.6% of Gemplus. "We're very enthusiastic about this team," says Abel Halpern, managing director in Texas Pacific's London office.

Perez acknowledges that managers were so worried about slowing sales that they didn't pay enough attention to employee fears. "We did a bad job with internal communications," he says. But Perez says he's more convinced than ever than Gemplus needs to reposition itself. Investors agree. "They are proceeding in the right direction, but [mobile-phone] cards are still more than half their sales," says analyst Ilkka Rauvola of BNP Paribas in London. Looks like putting the sparkle back into Gemplus is going to take all of Perez' grit.

For more on American Tech executives in Europe, click here. By Carol Matlack in Paris